The parties agreed to suspend "most favored nation" agreements for five years.

The European Commission announced on Thursday that it reached an agreement with Apple and four major book publishers that addresses concerns over possible e-book price-fixing. Simon & Schuster, Harper Collins, Hachette Livre, Macmillan, and Apple all agreed to modify existing agreements to allow retailers to discount e-books for two years and to eliminate "most-favored nation" clauses for five years. The Commission is satisfied that the changes address anti-competition issues and has suspended its investigation without levying fines or other sanctions.

The European Commission originally launched its investigation into e-book pricing in December 2011, amid claims that Apple and top publishers colluded to raise prices. When Apple launched the iBookstore, it used what is called the "agency model," wherein publishers set the retail price and Apple acts as a sales agent, collecting a 30 percent commission. Before that, e-books were still largely sold via the wholesale model, wherein publishers sell books to retailers for a wholesale price, and retailers are free to set whatever selling price they want.

Agency model

When people refer to the "agency model," it's usually in reference to the sale of electronic content online—in particular, e-books. The "old" way to sell e-books was to use what is known as the wholesale model. Under the wholesale model, book publishers sell a certain number of books to a reseller (such as Amazon or Barnes & Noble) for a set price, then the reseller sets its own price on each book.

Overall, publishers said they preferred Apple's model. Amazon, which was the largest e-book retailer by a large margin, had taken to selling e-books below wholesale cost in order to drive business for its Kindle e-readers. Publishers argued that doing so set consumer expectations for pricing below a sustainable level. As part of the contracts that publishers signed with Apple, though, certain clauses required that e-books sold via the iBookstore could not be sold at a cheaper price elsewhere.

Publishers later pressured Amazon to adopt the same agency model, and sure enough, e-book prices on Amazon went up. Amazon and consumers cried foul, prompting the EC to investigate Apple and the publishers for possible violations of EU anti-competition statutes.

In August, Apple and four of the five accused publishers (excepting Penguin) proposed to dissolve the existing agency agreements, agreeing to forego the contested "most-favored nation" clauses for a period of five years. Additionally, the companies agreed to allow retailers to offer discounts on e-books up to the annual amount of a retailer's commission on e-book sales for the next two years. (In other words, if Amazon sold $1 billion worth of e-books, it could offer discounts or even giveaways as long as the total amount doesn't exceed $300 million.)

The EC hinted in November that the proposed agreement would be accepted. After a "market test," the Commission was satisfied that the proposed changes would "remedy the identified competition concerns."

"While each separate publisher and each retailer of e-books are free to choose the type of business relationship they prefer, any form of collusion to restrict or eliminate competition is simply unacceptable," Joaquín Almunia, Commission vice president in charge of competition policy, said in a statement. "The commitments proposed by Apple and the four publishers will restore normal competitive conditions in this new and fast-moving market, to the benefit of the buyers and readers of e-books."

Penguin did not agree to the proposed changes, though the Commission said that it is still in discussions with the publisher to adopt similar remedies.

Meanwhile, the US Department of Justice is pursuing its own case against Apple and major publishers over e-book pricing. Three of the publishers, Hachette Book Group, HarperCollins, and Simon & Schuster, have reached a settlement with the DoJ and 16 state attorneys general over the matter, paying back $69 million to consumers.

Apple has contended that claims of collusion and pricing fixing are false, and that the DoJ has sided with the true monopolist, Amazon, in its accusations. Apple, Macmillian, and Penguin are preparing to go to trial with the DoJ in 2013, despite the fact that they may be willing to make similar concessions to those proposed in the EU.

"Our basic view is that we would like the case to be decided on the merits," Apple attorney Daniel Floyd said at a hearing in April. "We believe that this is not an appropriate case against us and we would like to validate that."

56 Reader Comments

"When Apple launched the iBookstore, it used what is called the "agency model," wherein publishers set the retail price and Apple acts as a sales agent, collecting a 30 percent commission."

"Additionally, the companies agreed to allow retailers to offer discounts on e-books up to the annual amount of a retailer's commission on e-book sales for the next two years. (In other words, if Amazon sold $1 billion worth of e-books, it could offer discounts or even giveaways as long as the total amount doesn't exceed $30 million.)"

It's either 300 million, or retailers commission is 3% instead of 30%.

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job. However, if the monopoly was gained in some illegal way then there would be a problem. In any event, it feels as if the MFN clause is collusive by its very nature, and I don't see how a temporary suspension will really do much in the long run. There is nothing stopping them from just jacking it back up after the suspension is up.

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job.

Of course monopolies are bad! They are an example of market failure. They lead to incorrect pricing and consumption of goods and services.

Well how is it bad when some makes a particular product or set of products so good that nobody wants anything else? Its like at the pinnacle of being the best, you become the worst. That seems contradictory to me. I agree, that monopolies are potentially bad if abused, but I wouldn't blanket them all as bad.

Have you ever played monopoly? I mean really played it all the way to the last man standing? Any mention of that Cthulhu forsaken game at any social gathering of mine results in instant banishment! Bad word indeed...

The big question is what happens at the end of 5 years? Everything goes back to what they wanted, but now it's ok?

Seems to me the only thing that is really anti-consumer here is Apple's version of "Most Favored". I may misunderstand some of how retail works, but my understanding is that a "Most Favored" type clause is fairly common.

I believe it generally works such that the retailer gets guaranteed that they will get the lowest available price from the supplier. What they or their competitors do after they pay the supplier is not addressed. (Example, Walmart gets Most Favored to buy widget for $7 each. Ma&Pa Co buy it at $8 each, or $7 but not less than $7. Ma&Pa Co can sell it to customers for whatever they want, as can Walmart. Walmart dictated the lowest price any party paid the supplier, but not the price any customer but Walmart's paid.)

The Apple version however is that the price Apple sells it to customers for is guaranteed to be the lowest, not that Apple gets the lowest price from the supplier. If Apple decides that they get a 30% profit (Agency contract) then all their competitors have to sell the product at a 30% profit point for Apple, regardless of what they pay the supplier regardless of the model (Agency or Wholesale). If a competitor decides that 20% profit is enough for them, their only option is to pay the supplier more, they cannot pay the supplier the same and charge the customer less than what Apple is charging. Apple dictates not only the lowest price paid to the supplier, but also the lowest price of every customer, regardless of where they go to get their product.

So reading the settlement, in the article not the original source, it seems that in two years discounts will be banned again. In five years "Most Favored" will be allowed again. Why would this behavior become OK in that time? It sounds to me like the settlement is basically the publishers saying "Ok, we'll just phase these exact same changes back in slowly."

"When Apple launched the iBookstore, it used what is called the "agency model," wherein publishers set the retail price and Apple acts as a sales agent, collecting a 30 percent commission."

"Additionally, the companies agreed to allow retailers to offer discounts on e-books up to the annual amount of a retailer's commission on e-book sales for the next two years. (In other words, if Amazon sold $1 billion worth of e-books, it could offer discounts or even giveaways as long as the total amount doesn't exceed $30 million.)"

It's either 300 million, or retailers commission is 3% instead of 30%.

You're right. "I don't know what happened, I must have missed a decimal point or something..."

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job.

Of course monopolies are bad! They are an example of market failure. They lead to incorrect pricing and consumption of goods and services.

Well how is it bad when some makes a particular product or set of products so good that nobody wants anything else? Its like at the pinnacle of being the best, you become the worst. That seems contradictory to me. I agree, that monopolies are potentially bad if abused, but I wouldn't blanket them all as bad.

"You keep using that word. I do not think it means what you think it means."

Is it still the case that regular books (I mean the kind made of paper) are never discounted and always sold for cover price in Germany? If so, I wonder how that can be permitted in the EU given this ruling.

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else. Essentially the same thing Apple did with iTunes.

Of course monopolies are bad! They are an example of market failure. They lead to incorrect pricing and consumption of goods and services.

By that token, Apple effectively having a tablet monopoly for X years was bad, even though they got it simply by releasing quality products that the public wanted.

I wouldn't really count that as a monopoly. There were several players in the market, there was always choice. Consumers are now increasingly choosing not to buy the iPad and opt for an Android or Windows tablet instead.

Competitors were coming out with cheaper and/or better products. That's what is supposed to happen. In a true Monopoly, the barriers to entry are so high, or it is a government granted Monopoly, so there is no competition.

I believe it generally works such that the retailer gets guaranteed that they will get the lowest available price from the supplier. What they or their competitors do after they pay the supplier is not addressed. (Example, Walmart gets Most Favored to buy widget for $7 each. Ma&Pa Co buy it at $8 each, or $7 but not less than $7. Ma&Pa Co can sell it to customers for whatever they want, as can Walmart. Walmart dictated the lowest price any party paid the supplier, but not the price any customer but Walmart's paid.)

The Apple version however is that the price Apple sells it to customers for is guaranteed to be the lowest, not that Apple gets the lowest price from the supplier. If Apple decides that they get a 30% profit (Agency contract) then all their competitors have to sell the product at a 30% profit point for Apple, regardless of what they pay the supplier regardless of the model (Agency or Wholesale). If a competitor decides that 20% profit is enough for them, their only option is to pay the supplier more, they cannot pay the supplier the same and charge the customer less than what Apple is charging. Apple dictates not only the lowest price paid to the supplier, but also the lowest price of every customer, regardless of where they go to get their product.

MFNs are an agreement between a supplier and a retailer that the retailer will always have the lowest price available. If CorpA agrees to RetailerB that they can buy $Widget for $5 and will always be able to purchase the widget at the lowest price offered if they then sell $Widget to MaAndPaC for $4 RetailerB's contract price automatically becomes $4.

In a legal MFN there is no statement that CorpA cannot provide $Widget to another retailer for a lower price, only that the statutory price for the MFN retailer becomes equal to that new, lower price. With a large enough RetailerB the net effect is similar to what Apple's clause causes to happen: CorpA won't give a new retailer a lower price than they give to RetailerB because RetailerB has much more sell through than any smaller retailer would.

The issue with Apple's clause is that they (and the publishers agreed to) forced the publishers to be completely unable to offer a lower price to any of their competitors. At a time when the iBookstore was the new thing (and far from a sure bet) and Amazon had sufficient sell-through that the publishers couldn't ignore requests from Amazon to lower prices (or fight them if they offered a sale that reduced their margins).

The very fact that Apple's contract with the publishers forced a change in their contract(s) with Amazon, in a manner that runs afoul of anti-competition laws, is the problem at hand. If they had obtained a standard MFN and the publishers had been unwilling to risk losing Amazons' business completely then things would have been copacetic. The result there would be Amazon and Apple would both be selling many books at $9.99 and if Amazon had a sale on a book Apple would have the same sale without cutting into their 30% margin.

There was a way to get most of what Apple wanted, legally and above-board. They couldn't legally get everything they wanted though (Amazon being forced into a #2 role to the iBookstore) legally and thus resorted to underhanded and illegal tactics.

So let me get this straight. Microsoft forgets to include a hilarious browser ballot screen in a Service Pack update, and they will likely be hit with around $1 Billion fine.

Source?

They haven't been fined yet. They face possible fines (up to $7 billion) but nothings been decided yet. Though I find their (Microsoft's) "forgetfulness" dubious. After the previous long, drawn out legal action over this, they just happened to "forget"?

The big question is what happens at the end of 5 years? Everything goes back to what they wanted, but now it's ok?

I trimmed out the rest since this really is the question I'm most curious about. What's the point of all of this if after 5 years we're going to get bent over again? It's almost like the "first fix is free..." kind of scenario to me where they get people "hooked" on e-books and then after they've had their "taste" they put the screws back in.

I swear, sometimes it's like many of these companies are run by old farts who grumble "I remember the good old days...." while they sip their mojitos out of gold goblets. I'm all for companies making money but this absolute fleecing of people, and the utter greed shown by most of the media companies, really makes me sick sometimes. -_-

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else.

Surely one of the actions a monopoly can take is to make it harder for new players to enter the market, either through pricing or tying. In this case, Apple seem to be alleging that Amazon are pricing below cost (and the article states this as well) and their monopoly power restricts Apple's ability to be successful in this market.

Quote:

Essentially the same thing Apple did with iTunes.

Possibly. I'm not sure the two are comparable, as there wasn't an existing online music store of any notable size before iTunes, and Apple kept the prices constant for many years regardless of the competitive landscape.

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else.

Surely one of the actions a monopoly can take is to make it harder for new players to enter the market, either through pricing or tying. In this case, Apple seem to be alleging that Amazon are pricing below cost (and the article states this as well) and their monopoly power restricts Apple's ability to be successful in this market.

Quote:

Essentially the same thing Apple did with iTunes.

Possibly. I'm not sure the two are comparable, as there wasn't an existing online music store of any notable size before iTunes, and Apple kept the prices constant for many years regardless of the competitive landscape.

Except that it didn't make it harder. Just because they price their books lower does not make them a monopoly, it makes them competitive but certainly not a "monopoly". Nothing stopped anyone else from entering the same market and offering competitive prices. And this is no different than what Apple did with music and iTunes. And Amazon and Google (as well as others) managed to still get into the digital music market just fine. Apple didn't seem to have a problem with it then, but because Amazon beat everyone to the e-book market (as Apple did with digital music) now they are the "monopolists"? Sorry, not buying it.

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else.

Surely one of the actions a monopoly can take is to make it harder for new players to enter the market, either through pricing or tying. In this case, Apple seem to be alleging that Amazon are pricing below cost (and the article states this as well) and their monopoly power restricts Apple's ability to be successful in this market.

Quote:

Essentially the same thing Apple did with iTunes.

Possibly. I'm not sure the two are comparable, as there wasn't an existing online music store of any notable size before iTunes, and Apple kept the prices constant for many years regardless of the competitive landscape.

1. Apple could've gotten in just fine - they wouldn'tve made their "standard" 30% and that's what sent them to make the illegal deal.

One of the many things I like about Amazon is that their leadership clearly understands that if they only make a couple of cents off however many purchases are made at their site every day, they'll be doing ok and the pricing brings back customers for more. We shouldn't punish the guys who AREN'T raping us for their profits, imho.

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job. However, if the monopoly was gained in some illegal way then there would be a problem. In any event, it feels as if the MFN clause is collusive by its very nature, and I don't see how a temporary suspension will really do much in the long run. There is nothing stopping them from just jacking it back up after the suspension is up.

No, monopolies are not good for the market. In this case, they artificially inflated ebook pricing.

Pricing is already screwey; the infrastructure and production costs of an ebook are far cheaper than a paper book, yet the prices on many are equal to or in excess of paperback pricing.

Few of my ebooks are actually major publishers, excepting Baen. There's a host of good, independently-published books on Amazon, which is really what the publishers fear: people getting a true idea about the cost of an ebook.

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else.

Surely one of the actions a monopoly can take is to make it harder for new players to enter the market, either through pricing or tying. In this case, Apple seem to be alleging that Amazon are pricing below cost (and the article states this as well) and their monopoly power restricts Apple's ability to be successful in this market.

Unfortunately the Apple claims were a lie. The DOJ already released documents demonstrating that Amazon sold books for a profit from day one. Apple simply was not happy with the margin. Everyone in the industry knew that fact, as they knew what they sold to Amazon and in what quantity and could easily check the retail prices. They chose to create this red herring to feed the public in the hope that it would imply Amazon was doing something shady or illegal. In other words, this was a blatant and intentional lie from Apple and the publishers.

Quote:

Quote:

Essentially the same thing Apple did with iTunes.

Possibly. I'm not sure the two are comparable, as there wasn't an existing online music store of any notable size before iTunes, and Apple kept the prices constant for many years regardless of the competitive landscape.

There was no existing online ebook store of any notable size before the Kindle, either.

I find it hi-larious that Apple accused Amazon of being the monopolist because they beat everyone else by offering e-books at a lower price than everyone else.

Surely one of the actions a monopoly can take is to make it harder for new players to enter the market, either through pricing or tying. In this case, Apple seem to be alleging that Amazon are pricing below cost (and the article states this as well) and their monopoly power restricts Apple's ability to be successful in this market.

Quote:

Essentially the same thing Apple did with iTunes.

Possibly. I'm not sure the two are comparable, as there wasn't an existing online music store of any notable size before iTunes, and Apple kept the prices constant for many years regardless of the competitive landscape.

Um, Amazon wasn't ever convicted of being a monopoly in the eBook world. They were certainly the biggest player, but even then there were other companies with eBooks ie B&N.

Apple's "defense" was some made up lawyer speak to try and change the subject.

Even IF Amazon was a monopoly, another company doing something illegal is still illegal.

Plus you'd have a hard time convincing a jury that the juggernaut that is Apple and their 100 Billion in the bank couldn't compete with Amazon on price - they just chose not to because they love their 30% markup.

We shouldn't punish the guys who AREN'T raping us for their profits, imho.

Who's us? How are companies and businesses "raping" anyone "for their profits" when they do not control an individual's wallet or purse? The person generally has the choice to buy or not to buy. I say generally because laws vary among the various countries of the Earth. The companies or businesses are NOT seizing, taking, or carrying anything off by force, therefore there is no rape (see definition below).

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job. However, if the monopoly was gained in some illegal way then there would be a problem. In any event, it feels as if the MFN clause is collusive by its very nature, and I don't see how a temporary suspension will really do much in the long run. There is nothing stopping them from just jacking it back up after the suspension is up.

No, monopolies are not good for the market. In this case, they artificially inflated ebook pricing.

Pricing is already screwey; the infrastructure and production costs of an ebook are far cheaper than a paper book, yet the prices on many are equal to or in excess of paperback pricing.

Few of my ebooks are actually major publishers, excepting Baen. There's a host of good, independently-published books on Amazon, which is really what the publishers fear: people getting a true idea about the cost of an ebook.

I just want to point out that pricing on an ebook is only around 15% lower than physical. Aside from that, yes I agree pricing is screwy. Penguin ebooks are routinely *more* expensive than physical versions, as I pointed out when I mentioned Dune.

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job. However, if the monopoly was gained in some illegal way then there would be a problem. In any event, it feels as if the MFN clause is collusive by its very nature, and I don't see how a temporary suspension will really do much in the long run. There is nothing stopping them from just jacking it back up after the suspension is up.

No monopolies are bad, period. Our governments should be stepping in to prevent them from occurring in the first place. That should be one of our governments prime functions, promoting competition and limiting if not preventing the forming of monopolies, as well as regulating business so that they do not take advantage of workers and/or consumers. If left unchecked, mergers and rich assholes will always try to corner the market and once they have, they can offer whatever quality of service or product they choose, as well as cut back on wages as much as they want and there isnt a damn thing anyone can do. Corporations and the very rich learned a very long time ago that the easiest way to win a race, is to own all the horses. At which point it is no longer a race, just a rigged casino game in which no one but the house ever wins.

They use monopoly like its a bad word. It is what any company strives for. Monopolies are not illegal, they are a sign you are doing a good job. However, if the monopoly was gained in some illegal way then there would be a problem. In any event, it feels as if the MFN clause is collusive by its very nature, and I don't see how a temporary suspension will really do much in the long run. There is nothing stopping them from just jacking it back up after the suspension is up.

No monopolies are bad, period. Our governments should be stepping in to prevent them from occurring in the first place. That should be one of our governments prime functions, promoting competition and limiting if not preventing the forming of monopolies, as well as regulating business so that they do not take advantage of workers and/or consumers. If left unchecked, mergers and rich assholes will always try to corner the market and once they have, they can offer whatever quality of service or product they choose, as well as cut back on wages as much as they want and there isnt a damn thing anyone can do. Corporations and the very rich learned a very long time ago that the easiest way to win a race, is to own all the horses. At which point it is no longer a race, just a rigged casino game in which no one but the house ever wins.

You do know that preventing monopolies has never been a function of government, right? Governments only have ever insisted that a monopoly be legally obtained, not that they be prevented entirely.

Maybe it should be a rule, but it seems that you would soon have to have governments preventing duopolies, as in a pure monopoly role why wouldn't at least one provider become complacent knowing the government was obligated to keep competition alive?

If "most favoured nation" clauses are anti-competitive, then why are they allowed in government trade agreements?

See even this has been screwed over.

MFN is an agreement between a two parties guaranteeing that if Party A sells a product to Party B, they will guarantee that Party B never gets a higher price than any other parties that also buy from Party A.

However it's been twisted in this case. Something that was supposed to ensure that Party B never got an unfair price of a good has now changed to be that Party B's reselling price can never be undercut.

It kind of falls apart because they also abandoned the wholesale model. In that case, it would ensure that Amazon and Apple both got the same wholesale price on the books keeping the resellers on equal footing. If one reseller chose to put an item on sale, that would be fine because the wholesale price would not change, and the other reseller could choose to price match for a lower margin, or not, and maybe put something else on sale.